What Is Whole Life Insurance? – Your Guide To Whole Life
Whole life insurance is the simplest form of permanent life coverage. It features lifelong protection with guaranteed premiums, an end benefit and a cash value element. A whole life policy is in force for the rest of your life unless you cancel the policy.
The advantages of whole life insurance are guaranteed death benefits, guaranteed cash values, and a fixed, predictable annual premium. This is aside from mortality and expense charges that will not reduce the cash monetary worth of the policy. To be clear, there is a downside to having a whole life policy. The premiums are fairly inflexible, and the fact that the rate of return may not be competitive with other savings alternatives. There are riders available to compensate for this, increasing the death benefit, but it means paying an additional premium.
A whole life policy is a means of accumulating assets as regular premiums pay insurance costs and contribute to equity growth. This means building an account where interest is allowed to build, tax deferred.
Whole life is a coverage option that’s best suited for a specific type of investor. Anyone with a stable income and long range financial and investment goals is a great candidate for this type of life coverage. The level premiums mean that you won’t pay more as you get older. And with the cash value growing over time, the funds you put into a policy are guaranteed to your family and beneficiaries.
This guaranteed value can help in a variety of ways during the term of your coverage. For example, if you have an urgent family situation or a temporary need for extra cash, you can extract money from your policy to address those needs and stay on track.
This type of policy is a whole life investment in the sense that the benefits begin at enrollment and continue through the rest of your life. It’s a secure feeling to know that the benefit will always be there for your family with this type of policy, and the ability to borrow against your policy at current rates gives you plenty of financial flexibility. The initial contributions you make to this insurance plan are not tax sheltered, but once the money is in a policy, its growth is tax deferred under current laws. You might compare it to other types of investments – bonds, market instruments or stocks.
The three most common types of whole life insurance are regular whole life policies, current and variable. With each type of whole life insurance, you can lock in the same monthly payment over the life of the policy. Whole life is not for everyone. In some cases, it may be considered expensive. You’re not only paying for the insurance component, but you’re also making an investment. But the combined functions of this single financial instrument mean more power for you. That extra cost may be worth it if the policy is a match for your needs. Insurance agents like to call these policies retirement plans, emphasizing the “enforced savings plan” inherent in investing the premiums each month for retirement.
Whether you’re looking for security for your family in the event of your passing, or you’re looking to secure your own retirement, a whole life insurance policy makes good sense by combining a term life policy with an investment element. In a word, whole life insurance is peace of mind.